We are now in the early stages of a third depression: Paul Krugman

[OhioChick]

29 Jun 2010, 0030 hrs IST,New York Times

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline – on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost – to the world economy and, above all, to the millions of lives blighted by the absence of jobs – will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world – most recently at last weekend’s deeply discouraging G-20 meeting – governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: The recession brought on by the financial crisis arguably ended last summer.

But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment – especially long-term unemployment – remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

More: http://economictimes.indiatimes.com/We-are-now-in-the-early-stages-of-a-third-depression-Paul-Krugman/articleshow/6101667.cms

[yourout]

1. To many economic knuckleheads do not understand the concept of a negative feedback loop...

[Grinchie]

2. I think the belt tightening is actually the America People waking up

Waking up to the fact that we all can't be homeowners like the advertisements tell us, nor can we go out an impulsively buy whatever we want on credit either like the Credit Card companies implore us to do.

It's funny, but this whole credit scheme is exactly what the World Bank and the IMF have been doing to Less Developed Countries for a half a century now. Give them great big loans, promising huge returns and happines that never materialize, then send the Collection Agency like the CIA or the Army to collect on their deiliquint debt.

They are both very effective forms of control, and now that the weapon of Money and Debt are turned on the people that have wielded this weapon for so long, they are finally waking up and calling them out.

The end result is a weakened, easily controlled set of people that will sell their soul to keep their jobs so they can keep the income flowing, even though they have no security. They fool themselves into thinking that if they obey the boss, they will be taken care of. They are wrong. There is always another shlub that will sell their souls for money.

The ones that have abandoned the sirens song and manipulative control of money by getting out of debt are the scariest type of citizenry the Government can imagine, which is which they are trying to crush as many people as they can into debt slavery.

Its a big dillemma, because you end up with a society full of mercenarys, willing to do anything for a buck, and those who have escaped, become juicy targets for the Jackals.

[sea four]

3. Dems need to get serious about fixing the economy

and reducing unemployment. We need WPA type work programs for jobless people.

They should not make the mistake of listening to the republicans and the corporate media.

[SkyDaddy7]

4. There simply is not enough votes!

Come November the GOP will control the House and it will be downhill from there! Then there will be nothing but investigations of Obama coming out of the House just like during Clinton's Administration. The American people will blame Obama for nothing getting done and a Republican will be POTUS come 2012.

I knew winning in 2008 was going to be a cursed victory and it was! The American people have completely forgot which party is largely responsible for where we are and what party is largely responsible for saving the economy and keeping unemployment as low as it is.

Oh well?

[pokercat999]

5. How can someone so intelligent be so dumb. It's not the amount

the federal government is spending it's what they are spending it on, that counts!

Where is the call for dramatic cuts in defense spending, the withdrawal of our forces from around the world, the severe restriction on imported goods in order to re-establish manufacturing in the USA, the WPA type program at REAL wages to carry us through this mess? Where is the call for the end of corporate welfare especially "farm aid" for corporate "farms"? When will we ever tax the rich?

Forget it! The politicians of both parties are so far up the corporate ass we will never get them back. Only a complete overhaul of the system and strict, severe term limits will give us a chance to get common sense citizens in these offices. We have to put an end to the "professional" lifelong office holder, Senator Byrd comes to mind, obscene is how I describe his "service".

[Jefferson23]

6. Thanks for posting this Op, Simon Johnson on a place for Krugman:

Tim Geithner and Larry Summers Need Paul Krugman To Replace Peter Orszag

By Simon Johnson. Tim Geithner and Larry Summers are talking a good game on fiscal policy to the G20. But they are struggling with to establish traction for their “spend now, consolidate later” message. Fortunately, there is an easy and obvious opportunity to establish credibility on this issue: Bring Paul Krugman into government.

Earlier this week, Peter Orszag resigned from his cabinet position as director of the Office of Management and Budget. The Washington Post put out one of the first lists of candidates who could replacement him. Senator Byron Dorgan would be a smart pick and some of the Post’s other suggestions could make sense.

But surely the front runner is Jason Furman. The working assumption is that Treasury Secretary Tim Geithner and National Economic Council director Larry Summers are in positions of influence for the long haul – and they have a track record of preferring team players over people who could bring competing perspectives to the table.

The Hamilton Project, housed at the Brookings Institution, was designed as a government-in-waiting by Robert Rubin. Then-Senator Obama attended its inaugural public meeting, with Peter Orszag as head of the project. Appointing Furman, successor to Orszag at Hamilton and currently a deputy to Larry Summers at the NEC, or another person from the same wing of the Clinton administration would continue in this tradition.


http://baselinescenario.com/2010/06/24/tim-geithner-and-larry-summers-need-paul-krugman-to-succeed-peter-orszag/